Gov't faces P2.2bn debt bill in September
Mbongeni Mguni | Friday August 21, 2020 14:48
Known as BW008, the bond is part of government’s domestic borrowing programme which in 2011 was increased to a limit of P15 billion. The bond matures on September 8, the end of its 10-year tenure, meaning government has to pay out investors holding the bonds at that point.
BusinessWeek has learnt, however, that fiscal authorities could effect a bond rollover, where rather than paying out the outstanding billions, existing investors are offered the opportunity to invest in new government bonds at rates proportionate to what they held in BW008.
Available literature suggests government has not effected a bond rollover since it began its domestic bond issuance programme in March 2008. “Bond rollovers or refinancing of debt would occur if government felt that its finances were not in a position to pay out the principle outstanding,” a local analyst told BusinessWeek.
“It’s common place worldwide and in fact, this year members of the Group of Seven industrialised countries are considering a US$8.7 trillion bond rollover. Locally, the Botswana Housing Corporation in 2017 was considering a rollover of one of the notes under its P2 billion programme. Rollovers also benefit investors when viable opportunities aren’t available in the market. With COVID-19, many investors will be looking where to place their funds because issuers’ outlooks have been affected.” When unveiling the 2020/21 budget in February, Finance and Development minister, Thapelo Matsheka told Parliament the P3.4 billion increase in statutory expenditure for the year was due mainly to the repayment of BW008.
Botswana has stood out as one of the continent’s best borrowers, rarely missing a payment on domestic or foreign debt, in the process earning Africa’s highest credit rating. Analysts said while the BW008 payout was budgeted for in February, the tighter fiscal position could require extraordinary measures by government.
From an original deficit forecast of P5.2 billion for this year, Matsheka is facing a P13.6 billion shortfall for this year which includes P500 million required to fund the Economic Recovery and Transformation Plan in 2020/21.
“A rollover could also incorporate the higher debt limit expected to be seen in the September auction of government bonds, if Parliament approves the request to increase the limit from P15 billion to P30 billion,” the analyst added.
Responding to BusinessWeek enquiries on the raising of the debt limit, Bank of Botswana officials said work was ongoing, with finalisation due sometime this year. “In general, an increase in the debt issuance is desirable to contribute to financing of government activity, develop the capital market and, in turn, help achieve beneficial use of domestic financial resources,” the BoB said in a written response.
The Botswana Bond Market Association could not shed light on the latest developments.
“The lifting of the ceiling is really within the purview of government and the capacity of government to borrow looking at the development plans in place.
“The Association has not engaged and considered this matter,” reads a response to BusinessWeek enquiries.